Partnerships, Corporations, Trusts and Estates

Classification of
Taxpayers
Partnership
Partnership - a contract between two (2) or more persons who

bind themselves to contribute money, property or industry to
a common fund, with the intention of dividing profits among
themselves.
Elements of a partnership:
 an agreement to contribute money, property or industry to a
common fund; and
 intent to divide the profits among the contracting parties.
GCRO Module 120 eVer.2.0 JAN 2023 32

Kinds of Partnership
 General Professional Partnerships
 General Co-partnership or a Partnership
 General Co-ownership

General Professional Partnerships
 are partnerships formed by persons for the sole

purpose of exercising their common profession, no
part of the income of which is derived from engaging
in any trade or business [Sec. 22 (B)]
 shall not be subject to income tax, but is required

to file a return setting forth the items of gross
income and of deductions allowed by law and the
names, TIN addresses and shares of each of the
partners

General Co-partnership or a Partnership
A partnership other than a general professional partnership

is considered a corporation for tax purposes and is subject
to tax.0

General Co-ownership
 Not subject to tax if the activities of the co-

owners are limited to the preservation of the
property and the collection of the income there
from in which case each co-owner is taxed individually on
his distributive share.
 Should the co-owners invest the income of the co–
ownership in any income producing properties, they would
be constituting themselves into a partnership which is
consequently subject to tax as a corporation.

Classification of
Taxpayers
Corporations
Corporation is an artificial being created by operation of law, having
the rights of succession and the powers, attributes, and properties
expressly authorized by law or incident to its existence. In
income taxation, corporation is much broader and it includes:
 Partnership
 Joint Stock Companies
 Joint Accounts
 Associations
 Joint Ventures
 Insurance Companies
 One-person Corporation

Classification of
Taxpayers
 Domestic Corporation
-created or organized in the Philippines or under its laws
 Foreign Corporation
-those that were formed, organized or existing under any
law other than those of the Philippines

Classification of
Taxpayers
 One-person corporation (OPC)
A corporation with a single stockholder, that may only be

formed by a natural person, trust, or an estate.
Banks and quasi-banks, preneed, trust, insurance, public and

publicly-listed companies, and non-chartered government-owned
and controlled corporations may not incorporate as OPC:
Provided, further, that a natural person who is licensed to
exercise a profession may not organize as an OPC for the
purpose of exercising such profession except as otherwise
provided under special laws.

FOREIGN CORPORATION
Foreign Corporation are either:
 Resident foreign – foreign corporation engaged in

trade or business within the Philippines [Sec.
22(H)] or having an office or place of business
therein.
 Non-resident foreign – foreign corporations not
engaged in trade or business within the Philippines
[Sec. 22 (I)].

Taxability of
Corporations
Tax Rate Tax Base
Taxable from all sources 30% Net taxable income

within and without the from all sources
Philippines (Effective January
1, 2009)
Effective July 1, 2020 25%
For year 2020 27.5%

Taxability of
Corporations
Tax Rate Tax Base
Taxable from all sources within and without 30% Net taxable income from all sources
the Philippines (Effective January 1, 2009)
Effective July 1,2020, Taxable from all 25%

sources within and without the Philippines
Optional Corporate Tax Rate 15%
a. Tax Effort Ratio 20% (GNP) Note: these requirements must all be
present to apply the tax rate
b. Income Tax Collection 40%
c. VAT Effort of 4% (GNP)
d. CPSFP ratio 0.9%
Minimum Corporate Income Tax 2% Gross income

July 1,2020 to June 30,2023 1%
July 1,2023 2%

Taxability of
Corporations
Tax Rate Tax Base

Preferential Rates
a. Propriety Educational 1% Net taxable income
Institutions and Hospitals provided that the gross
effective July 1,2020 to income from unrelated
June 30,2023 trade, business or other
activity does not exceed
July 1,2023 10% 50% of the total gross
income; if exceeded 50%
then 30% tax rate.
b. GOCCs, Agencies or Tax rate based on Net taxable income from
Instrumentalities corporations/ institutions all sources
with similar activity
(except GSIS, SSS, LWD & PHIC) Exempt
On certain passive income
a. Interests and Royalties 20%
b. Interest (FCDS) 15%

Taxability of
Corporations
Tax Rate Tax Base

c. Capital gains from the sales of shares of stocks
not traded in stock exchange
Not over P100,000 5%

Over P100,000 10%
The above tax was increased by RA 10963 15% Final Tax
d. Income derived under the expanded foreign currency
deposit system
e. Inter-corporate dividends
f. Capital Gains from the sale, exchange or 6% Final Tax

disposition of land and buildings
On improperly accumulated earnings 10% *repealed

Resident Foreign Corporations
(doing business in the Philippines)
Tax Rate Tax Base
International air carriers 2 ½%

International Shipping 2 ½%
Offshore Banking Units 25%
Tax on Branch Profit Remittance 15%
Regional or area headquarters of Exempt
multinational companies
Regional operating headquarters of 25%
multinational companies

Tax Rate Tax Base

In general, corporations are taxed only 25%
on taxable income within the Philippines *create
Reinsurance premium Exempt

Cinematographic film owners, lessors or 25%
distributors
Owners or lessors of Vessels chartered by 4 ½%
Philippine Nationals
Owners or lessors of aircraft, 7 ½%
machineries and other equipment

Tax Rate Tax Base

On certain income, the following taxes are imposed:
- Interest on foreign loans 20%

- Inter-corporate dividends Exempt
- Capital gains from sale of shares of stocks not
traded in the stock exchange
Not over P100,000 5%
Any amount in excess of P100,000 15%
Note: For capital gains from sale of shares of stocks not traded in
the stock exchange, a final tax was increased to fifteen percent (15%)
by RA 10963

Exempt Corporations
 Labor, agricultural or horticultural organization not

organized principally for profit;
 Mutual savings bank not having a capital stock represented

by shares, and cooperative bank without capital stock
organized and operated for mutual purposes and without
profit;

Exempt Corporations
 A beneficiary society, order or association, operating

for the exclusive benefit of the members such as
fraternal organization operating under the lodge system,
or a mutual aid association or a non-stock corporation
organized by employees providing for the payment of
life, sickness, accident or other benefits exclusively
to the members of such society, order, or association,
or non-stock corporation or their dependents;
 Cemetery company owned and operated exclusively for the
benefit of its members;

Exempt Corporations
 Non-stock corporation or association organized and

operated exclusively for religious, charitable,
scientific, athletic, or cultural purpose, or for the
rehabilitation of veterans, no part of its net income
or asset shall belong to or inure to the benefit of any
member, organizer, officer or any specific person;
 Business league, chamber of commerce, or board of trade,
not organized for profit and no part of the net income
of which inures to the benefit of any private
stockholder or individual;

Exempt Corporations
 Civic league or organization not organized for profit but

operated exclusively for the promotion of social welfare;
 A non-stock and non-profit educational institution;
 Government educational institution;
 Farmers’ other mutual typhoon or fire insurance company,

mutual ditch or irrigation company, mutual or cooperative
telephone company, or like organization of a purely local
character, the income which consists solely of assessments,
dues and fees collected from members for the sole purpose of
meeting its expenses; and

Exempt Corporations
 Farmers, `fruit growers’ or like association organized and

operated as a sales agent for the purpose of marketing
the products of its members and turning back to them
the proceeds of sales, less the necessary selling
expenses on the basis of quantity of produce finish by
them.

Policy on tax exemption
application
File with the CIR the following:

 An affidavit showing:
 The character of the organization;
 The purpose of which it was organized;
 Its actual activities, sources of its income and it
disposition, whether or not any of its income is
credited to surplus or inures to the benefit of any
private stockholder or individual; and
 All facts relating to its operations which affect its
exemption.

Policy on tax exemption
application
 A copy of the charter or articles of incorporation and by-

laws of the organization;
 The latest financial statement showing the assets,

liabilities, receipts and disbursements of the organization

Estates and trusts
Definition of Terms
 Estate – refers to all property, rights and obligations of a
person which are not extinguished by his death and also those
which have accrued thereto since the opening of the succession.
 Decedent – refers to the person whose property is transmitted
through succession, whether or \not he left a will. If he
left a will, he is called a “testator”
 Heir – is a person called to succession whether by the provision
of a will or by operation of law.

Estates and trusts
Definition of Terms
 Trustor or grantor – a person who established a trust.
 Trust – an agreement created by will or an agreement
under which title to property is passed to another for
conservation or investment with the income there from and
ultimately the corpus (principal) to be distributed in
accordance with the direction of the creator as
stated in the instrument.
 Trustee – one in whom confidence is proposed as regards
property for the benefit of another person.

Estates and trusts
Definition of Terms
 Beneficiary-the person for whose benefit the trust is

created.
 Fiduciary-means guardian, trustee, executor, administrator,

receiver, conservator, or any person acting in any fiduciary
capacity for any person.

Classification of Estates
 Estates under judicial settlement
 Estates not under judicial settlement

TRUST CLASSIFICATIONS
 Revocable Trust
 Irrevocable Trust

Partnerships, Corporations, Trusts and Estates

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Classification of

Partnership - a contract between two (2) or more persons who

GCRO Module 120 eVer.2.0 JAN 2023 32

 General Professional Partnerships

 General Co-partnership or a Partnership

GCRO Module 120 eVer.2.0 JAN 2023 33

General Professional Partnerships

 are partnerships formed by persons for the sole

 shall not be subject to income tax, but is required

GCRO Module 120 eVer.2.0 JAN 2023 34

General Co-partnership or a Partnership

A partnership other than a general professional partnership

GCRO Module 120 eVer.2.0 JAN 2023 35

 Not subject to tax if the activities of the co-

GCRO Module 120 eVer.2.0 JAN 2023 36

GCRO Module 120 eVer.2.0 JAN 2023 37

GCRO Module 120 eVer.2.0 JAN 2023 38

 One-person corporation (OPC)

A corporation with a single stockholder, that may only be

Banks and quasi-banks, preneed, trust, insurance, public and

GCRO Module 120 eVer.2.0 JAN 2023 39

Foreign Corporation are either:

 Resident foreign – foreign corporation engaged in

GCRO Module 120 eVer.2.0 JAN 2023 40

Tax Rate Tax Base

Taxable from all sources 30% Net taxable income

For year 2020 27.5%

GCRO Module 120 eVer.2.0 JAN 2023 41

Tax Rate Tax Base

Effective July 1,2020, Taxable from all 25%

Optional Corporate Tax Rate 15%

c. VAT Effort of 4% (GNP)

d. CPSFP ratio 0.9%

Minimum Corporate Income Tax 2% Gross income

GCRO Module 120 eVer.2.0 JAN 2023 42

Tax Rate Tax Base

GCRO Module 120 eVer.2.0 JAN 2023 43

Tax Rate Tax Base

Not over P100,000 5%

f. Capital Gains from the sale, exchange or 6% Final Tax

GCRO Module 120 eVer.2.0 JAN 2023 44

Tax Rate Tax Base

International air carriers 2 ½%

GCRO Module 120 eVer.2.0 JAN 2023 45

Tax Rate Tax Base

Reinsurance premium Exempt

GCRO Module 120 eVer.2.0 JAN 2023 46

Tax Rate Tax Base

- Interest on foreign loans 20%

GCRO Module 120 eVer.2.0 JAN 2023 47

 Labor, agricultural or horticultural organization not

 Mutual savings bank not having a capital stock represented

GCRO Module 120 eVer.2.0 JAN 2023 48

 A beneficiary society, order or association, operating

GCRO Module 120 eVer.2.0 JAN 2023 49

 Non-stock corporation or association organized and

GCRO Module 120 eVer.2.0 JAN 2023 50

 Civic league or organization not organized for profit but